I. & M. Smith (Pty) Ltd. since 1915
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I. & M. Smith (Pty) Ltd.

Coffee Market Report

19 Oct 2015
The latest Commitment of Traders report from the New York arabica coffee market has seen the Non Commercial Speculative sector of this market decrease their net short sold position within the market by 52.35% during the week of trade leading up to Tuesday 13th. October; to register a net short sold position of 10,068 Lots. This net short sold position which is the equivalent of 2,854,233 bags has most likely been increased again, following the sharp selloff which occurred on Friday.

There were very mixed signals in terms of weather coming to the fore from Brazil last week, with some forecasting scattered rains for the main south eastern Brazil coffee districts by the end of the week, while others were talking of little in the way of good rains until the end of the month. While with the month so far having been relatively hot and dry and with these conditions steadily reducing the ground water retention levels within the farms which were built up during the higher than normal September rains, some were already voicing fears of potential abortion of some of the early flowerings that came with last month’s rains.

It was however the view that so long as there are rains by the end of the month that all would be in order for the next 2016 Brazil crop that won the day on Friday, with the speculative and fund sectors of the more volatile New York market losing their confidence in the market ahead of the weekend. This sharp bearish move has been something of a shock and was too late in the day for much in the way of a reaction from the Brazil industry players and one might expect that later in the day and in the coming two to three days that there might well be reactive reports coming out of Brazil, which shall voice concerns that without much in the way of rain until next week that there has to have been some degree of damage to the potential of the next years Brazil coffee crop. Thus one might expect to see something of a roller coaster market, for the next couple of weeks.

The Colombian Coffee Federation have reported that it is their opinion that between 30% to 35% of the country’s green coffee exports are now exported under some form of identity, which would be related to the speciality coffee offerings within the consumer markets. This estimate which they say is a conservative estimate is however not only related to coffees being of very special quality, but also to the various forms of sustainability labelling and including organic coffees.

But one might comment that the fine washed arabica Colombian coffees in terms of comparative quality to other coffee producers have historically been of overall good quality and have therefore, always had a good share of the top end and speciality blends within the main consumer markets. Thus it is difficult in terms of the wide range of factors that are related to the term speciality and are not always specifically related to quality and often only to story, image, certification etc., to really quantify the market shares of individual producers in terms of what is sold under the speciality umbrella.

The second month arbitrage between the markets narrowed on Friday, to register this at 55.76 usc/Lb., while this equates to a 43.16% price discount for the London robusta coffee market. This arbitrage remaining relatively attractive to roasters in comparison to arabica coffee prices, but is perhaps due to widen further in time and when Vietnam stocks start to impact upon the fortunes of the London market.

The Certified washed Arabica coffee stocks held against the New York exchange were seen to decrease by 1,939 bags on Friday; to register these stocks at 1,892,813 bags. There was meanwhile a larger in volume 6,547 bags decrease to the number of bags pending grading for this exchange; to register these pending grading stocks at 70,950 bags.

The Certified Robusta coffee stocks held against the London exchange were seen to decrease by 500 bags on Thursday 15th. October, to register these stocks at 3,402,500 bags on the day.

The commodity markets were mixed in trade on Friday, but with the overall macro commodity index having a relatively steady end to the week. The Oil, Sugar, Cocoa, Cotton and Orange Juice markets had a day of buoyancy, while the Natural Gas, Copper, Wheat, Corn, Soybean, Gold, Silver and Platinum markets tended softer and the Coffee markets tumbled out of bed. The Reuters Equal Weight Continuous Commodity Index that is made up from 17 markets is 0.12% lower to see this Index registered at 407.13. The day starts with the U.S. Dollar steady and trading at 1.545 to Sterling and 1.138 to the Euro, while North Sea Oil is near to steady in early trade and is selling at 49.25 per barrel.

The London market and New York markets started the day tending softer on Friday, but while the New York market was steadily coming under pressure, the London market did manage a brief bounce back to par. The New York market continued to come under pressure into the afternoon trade, which had its influences within the London market that likewise started on a downside track. As the afternoon progressed and with speculative and fund sell stops being triggered the New York market accelerated its losses and with the London market following suit, to see both markets have a somewhat unforeseen dismal end to the weeks trade. The London market continued to end the day on a soft note and with 77.8% of the losses of the day intact, while the New York market ended the day on a very soft note and with 91.3% of the earlier losses of the day intact. This dismal close does little to inspire but there might be some degree of caution coming to the fore and one might even see some Brazil weather related modest corrective buoyancy coming into play for early trade today, against the soft prices set on Friday, as follows:

LONDON ROBUSTA US$/MT            NEW YORK ARABICA USc/Lb.

NOV 1613 – 54                                      DEC     125.85 – 7.85
JAN 1619 – 42                                       MAR    129.20 – 7.90
MAR 1633 – 43                                     MAY    131.15 – 7.85
MAY 1652 – 43                                       JUL    133.00 – 7.75
JUL 1671 – 44                                         SEP    134.85 – 7.60
SEP 1690 – 44                                         DEC   137.45 – 7.20
NOV 1709 – 44                                       MAR  139.95 – 6.90
JAN 1727 – 44                                         MAY  141.70 – 6.80
MAR 1745 – 44                                         JU L 143.35 – 6.80
MAY 1761 – 44                                         SEP  144.60 – 6.80